March 1, 2022
BANGKOK – Assoc Prof Dr Anusorn Tamajai, a former board member of the Bank of Thailand and former dean of Rangsit University’s Faculty of Economics, said the economic sanctions imposed by the United States, the European Union and United Kingdom could not do much against Russia.
Russia was removed from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) on Saturday.
Russia’s banking system is not completely cut off from SWIFT and Moscow could also turn to cryptocurrency to minimise the impact, Anusorn said.
The measure could have hurt Russia because up to 40 per cent of its revenue comes from sale of oil and gas, which accounted for 60 per cent of its export value, Anusorn said.
But due to a request by Germany, the boycott was carried out in a “targeted cut-off” manner, Anusorn said.
He said Germany feared that completely cutting Russia off from SWIFT would affect German energy firms and the financial institutions of both Germany and US by being unable to communicate with financial institutions in Russia.
He said the SWIFT system links over 11,000 financial institutions in over 200 countries. When Russia is unable to carry out transactions via SWIFT, its exports would be disrupted and its gross domestic product would contract by at least 5 per cent in a year. The estimated damage could be around US$85 billion, or Bt2.72 trillion, he said.
“So, the SWIFT measure is unlikely to have much political and military impact on the government of President Vladimir Putin. And Russia may turn to use China’s Cross-Border Inter-Bank Payment System or cryptocurrency, although these solutions cannot substitute the use of SWIFT,” Anusorn added.
He pointed out that Russia was not the first nation to be removed from SWIFT in a boycott. Iran was once blocked from using SWIFT and its foreign trade value disappeared by 30 per cent. Two or three years later, Iran succumbed to the pressure and agreed to enter into negotiations with western nations on its nuclear programme.
Anusorn said western nations have also blocked Russia from accessing technologies and their financial markets and had also seized the assets of Russian leaders who are close to Putin. They have also banned exports of certain goods to Russia. Anusorn said these measures would have more impact on Putin than the SWIFT measure.
“I see cryptocurrency playing a bigger role for transactions and for payments between countries in the Russia-Ukraine conflict,” Anusorn said.
He said cryptocurrency cannot be controlled by a central government, so it can be used to cope with the economic boycott, and cryptocurrency can also be used to rally financial support for the Ukraine army.
However, he said, the use cryptocurrency created the risk of a bubble that could burst anytime, and the demand for cryptocurrencies in Russia and Ukraine would not shore up the falling prices of the digital currencies.
During this time of war, he said people in Ukraine were also turning to use Stablecoin type of cryptocurrencies, which are pegged to the US dollar, instead of carrying cash.
Anusorn said Thailand and financial institutions should be careful not to be used as a hub for Russia to circumvent the economic boycott measures.
He pointed out that damage from penalties would not be worth the financial returns from allowing Putin to use Thailand to circumvent the economic boycott measures.
Key points on SWIFT:
SWIFT stands for Society for Worldwide Interbank Financial Telecommunication. The system was invented to replace telex in 1973. Its head office is in Belgium.
SWIFT’s responsibility is to be the median for international transactions among over 11,000 financial institutions that use SWIFT payment system. The system covers 200 countries.
SWIFT works as a median for transferring and receiving international transaction information. It facilitates transactions no matter where the banks are located.
SWIFT is supervised and controlled by the Central Bank of Belgium and representatives from the US central bank, the UK central bank, the EU central bank, the Japanese central bank and central banks of other economic superpowers.
SWIFT operates only as a link, without having a deposit system or financial reserves. So it works differently from other banks.
In 2021 alone, there were 42 million transactions made via SWIFT each day, including purchase orders, payment confirmations, and currency exchange.